This archive report was first published on 13 July 2020.
A recent report by Cytonn Investments has revealed that Karen and Kasarani suburbs in Nairobi recorded the highest annualized capital appreciation at 5.6% and 5.7% respectively in 2019/20.
The report, which focuses on the Nairobi Metropolitan Area Land (NMA) sector, highlights the land sector's performance based on annual capital appreciation, market trends, and investment opportunities.
According to the report, the land sector within the NMA recorded an 8-year Compound Annual Growth Rate (CAGR) of 13.5% and an annual capital appreciation of 1.5% in 2019/20, compared to 0.3% recorded in 2018/19.
The report attributes the increased demand for land mainly in low-rise residential areas and satellite towns, driven by factors such as the affordable housing initiative, development of infrastructure, positive demographics, and reduced supply of development land at affordable prices in areas close to the Nairobi Central Business District (CBD).
However, the sector was constrained by inadequate infrastructure, inaccessibility, unaffordability of loans, and reduced real estate development activities in the wake of the COVID-19 pandemic, which has resulted in the disruption of construction materials supply chains and constrained development funding.
Beatrice Mwangi, a Research Analyst at Cytonn, noted that asking land prices in low-rise residential areas recorded a 3.8% capital appreciation year-over-year, attributed to the availability of development land and growing demand as the areas are sparsely populated, offering exclusivity and privacy.
Site and service schemes recorded a 0.5% annualized capital appreciation, attributed to increased demand driven by relatively affordable land at approximately Kshs 15 million asking price per acre and provision of infrastructure by developers.
On the other hand, asking land prices in high-rise residential areas stagnated, attributed to reduced demand for development land due to relatively high land prices averaging at approximately Kshs 116 million per acre, compared to low-rise residential areas and un-serviced land in satellite towns averaging at Kshs 84 million and Kshs 25 million, respectively.
Commercial zones recorded a 0.7% year-over-year correction in asking land prices, attributed to decreased demand for development land in the sub-markets given the relatively high asking land prices of Kshs 419 million per acre, on average, thus developers are not able to achieve favorable returns from the investments, in addition to the existing oversupply of commercial office and retail spaces which stand at 5.2 million square feet and 2.8 million square feet, respectively, as at 2019.
The outlook for the land sector is neutral, with a bias to positive supported by the high demand for development land boosted by affordability in satellite towns, availability of development land, and improving infrastructure. However, we expect the COVID-19 pandemic to continue impacting on real estate development activities, thus a resultant sluggish growth in land value going forward.
